Colombia: Overhaul in transport infrastructure

Colombia: Overhaul in transport infrastructure

23rd January 2013

Latin America | 22 Jan 2013

The impact that Colombia’s poor transportation infrastructure could have on future economic growth was highlighted twice last year in separate reports released by the World Bank and Fedesarrollo, an independent Colombian think tank.

Both reports said the development and rehabilitation of domestic transport networks would require a multi-billion-dollar investment, ideally led by the private sector, to meet rising demand and support economic expansion. The findings have been acknowledged by the government, which has pledged to make infrastructure development a priority by rolling out a raft of public-private partnership (PPP) schemes between 2011 and 2021.

In its Colombia Urbanization Review, the World Bank found that a combination of dense urban centres, lengthy distances between hubs and poor infrastructure made it difficult for cities to be competitive. The review also highlighted the challenging conditions that Colombia’s mountainous topography and harsh climate presented, saying the added transportation costs they produced were reflected in the price of goods.

The cost of shipping products from the capital Bogotá to the Caribbean coast averages US$94 per tonne, US$34 more than transporting the same goods from the port of Cartagena to Shanghai. Colombia’s high reliance on commodities, which are mostly found in the interior and make up 7% of GDP, means that poor infrastructure is directly hindering economic growth and competition, the report found.

The Fedesarrollo report, delivered in late November at the 9th National Congress on Infrastructure in Cartagena, cited low levels of public and private investment, together with inefficient upkeep, as the main reasons for the infrastructure lag. It estimated that around $11bn, or 3.1% of GDP, would need to be invested annually over the next 10 years to bring transportation capacity in line with economic growth and demand. Road networks and railways, which carry 71.7% and 26.6% of goods in Colombia, respectively, were named as the two transport segments most in need of development and rehabilitation.

The report also highlighted the importance of boosting Colombia’s ports and airports, saying that while they were meeting current demand, their operation at near-capacity signalled the need for expansion, given the Ministry of Finance’s recent economic growth forecast of 4.8% for 2013. The Fedesarrollo report also suggested the transport infrastructure overhaul should be led by PPP schemes, listing the key contributions the private sector could make to development. Many of the report’s recommendations reflected the government’s overall strategy for rehabilitating transport networks, which includes a major drive to attract foreign and domestic private investment for its projects. As part of its bid to drive infrastructure development forward, the administration introduced key legislation 12 months ago governing the concessions procurement process for private companies undertaking large-scale projects. The new, fourth-generation PPP framework puts a 30-year maximum time limit on PPP initiatives and restricts the contribution that the government can make to 20% of a project’s budget.

The National Infrastructure Agency (ANI), created in November 2011 to replace the National Institute of Concessions, will oversee the government’s coordination with the private sector for infrastructure development. As part of its remit, the ANI will spearhead government plans to secure more than $50bn in investment for transportation development via PPP schemes between 2011 and 2021. Under the new scheme, the agency expects a four-fold increase in four-lane highways (to 3400 km), a three-fold extension in railway tracks (to 2340 km), and a 100% and 50% increase in ports and airport capacity, respectively, by 2020.

Bidding rounds for these projects are to be held over the next 18 months. In December, the agency began the bidding process for $1.95bn of roadwork concessions to rehabilitate four highways. The government aims to award a total of $27.9bn worth of concessions for roadwork by 2021, together with $10.5bn for railways, $1.5bn for ports, $1bn for airports and $1.5bn for waterways.

Ten years of economic, fiscal and social reforms have helped Colombia build a reputation as an attractive destination for private capital, in particular foreign direct investment (FDI). Plans to revamp transport infrastructure should further strengthen efforts to bring the private sector on board for its most ambitious development to date.